Sales and Operations Planning

Business Forecasting

Taruna Nagpal
Sean O’Donnell
Anthony Stramecki
Vivian Yu
Agenda

 Sales and Operations Planning Overview

 Process
 Certification
 Applications in Semiconductor Industry
 Standard Monthly Procedure
Sales and Operations Planning(S&OP)

Definition:

 A formal process, consisting of series of meetings,

where data from various areas of business is
discussed and decisions are made.

 The goal is agreement between various departments

on the best course of action to achieve the
optimal balance between supply and demand and to
meet profitability goals.
Normal Time Frame

 Takes a monthly look at product groups at 

least 6- 12 months across the planning
horizon.

 Some companies go out as far as 18 months.

Sales and Operations Planning (S&OP)

C r e a t e a d e m a n d p la n f o r t h e t a r g e t t im e p e r i o d

C o r r e s p o n d in g s u p p ly p la n is c r e a t e d f o r t h e t im e p e r io d

P la n s a r e f e d in t o a p r e - S & O P p r o c e s s , w h e r e s o lu t io n s t o a d d r e s s t h is im b a la n c e a r e f o r m u la t e d

S & O P m e e t in g a t t e n d e d b y s e n io r le a d e r s h ip f r o m s a le s , m a r k e t in g , o p e r a t io n s , f in a n c e a n d o t h e r o p e r a t io n a l a r e a s .

D is c u s s t h e is s u e s r e c o m m e n d e d s o lu t io n s

R e v ie w s a lt e r n a t iv e s

M a k e s d e c is io n s
Type of Data considered

 Current plan for each product group

 Current finished goods inventory
 Sales forecasts
 Purchase Orders received
 Materials available
 Manufacturing plans and capacity
 Distribution capacity
 Shipping capacity
 Performance measures
 Customer Service
 S&OP Software
 Dash Optimization Supply Chain Planning Software
 DCRA Solutions
 Demand Solutions - Demand Solutions Sales and
Operations Planning Software (DSOP)
 Futurcast
 IBM Stratum
S&OP Software
Steelwedge Software Interface
A typical model of the Sales and Operations Planning
process
Source: WP Salesoperationsplanning12.pdf
Demand Review Process

 The ultimate goal of the demand plan is to gain

consensus on what will be sold and what revenue will
be produced

 Participants discuss factors that influence demand

and agree on a single demand plan that is then
passed
Supply Review Process

Create a supply plan that includes rough-cut

capacity plan, procurement plan, and accompanying
costs.
Sales and Operations
Planning Meeting
 Discuss and resolve any imbalances between
supply and demand

 All decisions are published as a single authorized

plan which becomes the operating plan for each
function within the company
Benefits:
 Increase plan accuracy
 Increase product margins
 Improve customer satisfaction
 Reduce costs through efficient use of resources
 Drive organizational flexibility
 Reduce inventory and obsolescence costs
 Better communication between groups
 Improved cash flow and Shorter lead times
 Reduced transportation costs
Tips for Successful Planning processes
 Include specific schedules and participants.
 Identify Key Performance Indicators prior to
beginning
 Have an attitude of continuous improvement
 Stabilize the Demand Planning process prior to the
Supply Planning process.
 Hold regular meetings
S&OP Certification - CPIM
Company Benefits
 More Effective Personnel Selection

 Improved Forecasting Practices and Processes for Your

Business. Enhance knowledge of those already in the field.
 Better Forecasts and Related Business Decisions

Forecaster Benefits
 Professional Development
 Forecasting Knowledge Development and Expansion

 Career Advancement

 Validation of Forecasting & Planning Knowledge and Skills

 Globally Recognized Credential

S&OP Certification - CPIM

Benefits of Certified in Production and Inventory Management

A CPIM education can help you to

 Increase your functional knowledge of production and inventory
management
 Improve efficiency across the processes of your organization's
supply chain
 Streamline operations through accurate forecasting
 Predict outcomes more accurately
 Maximize customer satisfaction by delivering products and
services Just-in-Time
 Increase profitability by optimizing your organization's inventory
investment
 Enhance your credibility among peers, employers, and
customers.
S&OP Certification - CPIM

Candidates must pass all exams for the

following modules
 Basics of Supply Chain Management
 Master Planning of Resources
 Detailed Scheduling and Planning
 Execution and Control of Operations
 Strategic Management of Resources
S&OP Certification - CPIM

Who should earn the CPIM designation?

A CPIM education is essential for professionals involved in

* Production and inventory management

* Operations
* Supply chain management
* Procurement
* Materials management
* Purchasing
S&OP application in industry
 Semiconductor industry
 Surveyed 9 global semiconductor companies
 Only 10-15 so survey covered half; therefore, it’s a good
reflection of the overall industry
 Purpose
 Investigate the extent of S&OP used and
determine its strengths and weaknesses.
 Focuses on 2 parts:
 Forecasting: Driving force behind ops planning
 Operations planning: Main focus
S&OP in the semiconductor industry

-All companies use it in at least

their marketing, operations, and
finance depts. Most also employ
it in sales and service/logistics

-Sales/marketing and
manufac/ops
are the main drivers of the S&OP
process
S&OP in the semiconductor industry
 Forecasting
 Relative importance of different factors in the demand forecast
generation

 Frequency of forecasts: 1 weekly, 1 quarterly, and the rest

monthly
 Primary time horizon:
 3 companies = 24 months; 3 = 18 months; 1 = 15 months; 2 = 12
months
S&OP in the semiconductor industry

 Forecasting (cont.)
 Software used in forecasting
 Most popular method is spreadsheets then SAP America,
followed by software developed internally and I2
 How frequently do you measure and review forecast
accuracy?
 5 companies measure and review on monthly basis, 1
bimonthly and 2 quarterly
S&OP in the semiconductor industry

 Operations Planning
 Planning horizon for S&OP
 Except for three companies which use a planning horizon of
12 months, all use 18 months
 Primary objectives of your S&OP process
 3 companies primarily use it to align plans with demand/sales.
The other 6 use it to align plans with both demand/sales and
business strategy.
 Length of time to complete one cycle of the S&OP process
 3 companies spend one month, 3 spend two weeks, 1 spends
three weeks, and 2 spend more than one month
S&OP in the semiconductor industry
 Operations Planning (cont.)
 Software used and satisfaction levels

 As can be seen there is equal satisfaction between

spreadsheets or software developed internally and
customized software that was outsourced
 Overall satisfaction levels medium to low. No
company has a high level of satisfaction
S&OP in the semiconductor industry

 Operations Planning (cont.)

 Key items covered in the process

- Sales, production issues,

and demand/production
gap closure plans are
named to be the key item
by most companies. New
product schedules,
customer service and
inventory also key factors.
Financial forecasts and
capital planning are key
items to only a few
companies.
S&OP in the semiconductor industry

 Operations Planning (cont.)

 Are there metrics in place to measure effectiveness (or
quality) of the production plans, commonly the output of the
S&OP process?
 All but one said yes. Most fall within the responsiveness
category (fulfillment of production plan, flexibility, on-time
delivery) followed by inventory (availability, shortage, excess)
 Are financial estimates integrated within the SOP process?
 One company has them fully integrated, two companies keep
financial estimates and SOP totally seperate, and the
remaining 6 adjust financial numbers according to SOP
output.
S&OP in the semiconductor industry

• Strengths and weaknesses of the S&OP process

S&OP in the semiconductor industry

 Conclusions
 Many companies complain about the length of their SOP
cycle, its complexity, and input data validity/integrity.
 Solution: Building integrated databases and automating the
process (expediting communication and streamlining decision
making)
 Need for better forecasting since it is the driving force
behind the process.
 Integration of finance into S&OP process
 All companies agree that its strength lies in the integration of
decision making by bringing several depts. together; however,
tendency is to keep it at operations level. In order to fully
benefit from process financial planning should be integrated
into it.
 The monthly sales and operations
planning process
STEP 5
Exec SOP Decisions
Meeting
STEP 4
Pre-SOP Recommendations
Meeting
For executive S&OP
STEP 3
Supply
Capacity constraints
Planning
2-nd pass spreadsheet
STEP 2
Demand Management forecast
Planning
1-st pass spreadsheets
STEP 1
Data
Statistical forecasts
Gathering
Field sales worksheet

End of month Wallace: 2nd edition Sales & Operations Planning

Step 1 – Data gathering

 Month end data

 Actual sales
 Inventory
 Production

 Sales and marketing

 All pertinent information

 Sales

  Jan Feb Mar Apr May June Jul Aug

Forecast 100 100 100 120 120 120 120 130

Actual sales 90 95 85          

Difference -10 -5 -15          

Cum. difference   -15 -30          

Wallace: 2nd edition Sales & Operations Planning

 Production

  Jan Feb Mar Apr May June Jul Aug

Planned
production 100 100 100 110 120 120 120 130

Actual production 98 100 101          

Difference -2 0 1          

Cum. difference   -2 -1          

Wallace: 2nd edition Sales & Operations Planning

 Inventory

  Jan Feb Mar Apr May June Jul Aug

Planned
inventory 100 100 100 142 142 142 142 142

Actual inventory 111* 116 132          

Difference 11 16 32          

*January Inventory = 103 Wallace: 2nd edition Sales & Operations Planning
 Comparing actual to forecast
Jan Feb Mar Apr May June Jul Aug
Forecast 100 100 100 120 120 120 120 130
Acutal sales 90 95 85
Difference -10 -5 -15
Cum. difference -15 -30

Jan Feb Mar Apr May June Jul Aug

Planned production 100 100 100 110 120 120 120 130
Actual production 98 100 101
Difference -2 0 1
Cum. difference -2 -1

Jan Feb Mar Apr May June Jul Aug

Planned inventory 100 100 100 142 142 142 142 142
Actual inventory 111* 116 132
Difference 11 16 32

*January Inventory=103 Wallace: 2nd edition Sales & Operations Planning

Step 2 – Demand planning

 Sales and marketing review information

received from Step 1

 Sales forecast
 By product
 By family
 Total
Demand planning team
 Demand manager  Salesperson

 Product manager  Customer service

 Forecast analyst  Accounting manager

 Sales manager  Supply chain manager

 Forecasting: Inputs, Process, Outputs
INPUTS OUTPUTS

Current Customers
New customers
Competition Forecasts That:
Economy •Are reasoned
THE •Are realistic
New products
PROCESS
Pricing •Are reviewed

Bids •Represent demand

Promotions
Management directive
History
Other
Step 3 – Supply planning

 Bill of resources

 Rough-cut capacity

 Interaction of lean manufacturing

 Demand/Supply Strategies
 Bill of resources - Family Level (per 000 units)
Key resources Families
Description 1 2 3 4 5
Mix (hrs) 2.7 5 13.1 0 14
Fil (hrs) 1.2 3.1 2.6 0 6
Test (hrs) 1.6 2.4 1.1 0.7 7
Labeler #6 (hrs) 3.3 3.3 0 2 0
Warehouse space (cube) 6.7 3.3 0 2.6 19
Supplier A (gallons) 8.7 6.7 7.1 0 0
Wallace: 2nd edition Sales & Operations Planning
Rough-cut capacity plan

Key resources Family Production Plan Quantity Capacity

Description 1 2 3 4 5 Max
Req'd Demo
20 20 20 20 20 Demo
Mix (hrs) 54 100 262 0 280 696 584 621
Fil (hrs) 24 62 52 0 120 258 450 482
Test (hrs) 32 48 22 14 140 256 275 290
Labeler #6 (hrs) 66 66 262 40 0 696 700 800
Warehouse space (cube) 134 66 0 52 380 632 650 675
Supplier A (gallons) 174 134 142 0 0 450 500 640
Wallace: 2nd edition Sales & Operations Planning
Interaction with lean manufacturing

 Aligned resources

 Flow

 Takt time
Demand/Supply Strategies

 Product Family: 1
1. Make-to-stock
2. Target customer service level 99%
3. Target finished goods inventory 1 month

 Product Family: 2
1. Make-to-order
2. Target customer service level 98%
3. Target customer lead time 2 weeks
Step 4 – Pre-SOP meeting
 Make decisions to balance supply/demand

 Resolve differences where possible

 Identify areas of disagreement

 Develop scenarios

 Set agenda for Executive S&OP meeting

Step 5 – Executive S&OP meeting

 Make decisions
 Authorize changes in S&OP plan
 Relate dollarized version
 Resolve issues
 Review performance, product issues, special
projects, etc.
Preliminary close meeting
Day of month Reports Attendance Key objectives

3rd business -Income -Plant manager -Results

day after Statement -Plant -Comparing
month end -Balance sheet controller forecast to
-Control book -Financial/ actual
operations -Inventory
Analyst levels
-A/R
-A/P
Final close meeting
Day of month Reports Attendance Key objectives

7th business -Income -CFO -Results

day Statement -Financial/ -Comparing
-Balance sheet operations forecast to
-Actual vs. Analyst actual
forecast -Controller -Inventory
-Variance -Cost levels
accountant -A/R
-A/P
Sales forecast

 Pricing adjustments

 Customers forecasts

 Due by the 10th

 Prepared by sales/marketing
Sales and operations plan

 Prepared by plant manager and controller

 Capacity issues

 Productivity

 Produced by the 15th

Questions?